MUMBAI: The Maharashtra government's move to impose a 5% value-added tax retrospectively on flats triggered a 3-6% fall in realty stocks which were already hit by low off-take because of high prices, rising debt and interest rates.

Analysts said that the retrospective tax and the finance ministry's pressure on state-owned banks to push builders into selling unsold flats would further hit investor sentiment towards realty stocks.

"Realty has found the going tough on the markets for the past six months or so with investors avoiding the high beta plays for a variety of reasons such as high debt and fund costs, and on corporate governance issues," said Sudip Bandyopadhyay, MD & CEO, Destimoney Securities. The retrospective tax is one more measure that will add to the downside."

The ET Realty Index comprising 15 listed stocks such as HDIL, DLF, Unitech, etc, has fallen by 16% over the past six months.

A section of Maharashtra's property developers have moved the SC against the levy after the Bombay High Court earlier rejected their appeal against the levy.

"Retrospective application of VAT and finance minister P Chidambaram's recent suggestion to PSU banking chief's to step up pressure on builders to lower prices for selling unsold inventory has recently queered the pitch for these stocks," said Gaurav Dua, research head, Sharekhan. "Rather than touching high-beta cyclical sectors, investors prefer to bet on consumer-driven sectors where return on eqioty is higher."